Mortgage rates today, July 3, 2018, plus lock recommendations

What’s driving current mortgage rates?

Mortgage rates today are unchanged, again. But keep in mind that individual lenders’ rates are probably changing but the averages we report have not. Factory Orders for May, expected to drop .1 percent, actually increased .4 percent. That’s a positive direction for the economy, but negative for rates. And the impact is minimal.

Financial data affecting today’s mortgage rates

Most indicators are neutral-to-good for interest rates. I’d probably lock.

Major stock indexes opened lower (good for mortgage rates)

Gold prices increased $6 to $1,254 an ounce. (That is good for mortgage rates. In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower)

Oil prices are still at $74 a barrel (that’s neutral for mortgage rates today, but when we blow through the $70 threshold, it’s not great long-term because energy prices play a large role in creating inflation)

The yield on ten-year Treasuries fell 1 basis point (1/100th of 1 percent) to 2.84 percent. That is positive (and the only good news) for mortgage rates because mortgage rates tend to follow Treasuries

CNNMoney’s Fear & Greed Index dropped 2 points to 32 (out of a possible 100). That is a more fearful direction, into the “fear” range. That would be good if the reason weren’t inflation and trade-war related. Normally, “fearful” investors push bond prices up (and interest rates down) as they leave the stock market and move into bonds, while “greedy” investors do the opposite

This week

This week offers a few pertinent economic releases. Most of the releases we get won’t be of major importance until Friday. Keep your eyes open.

Monday: ISM Manufacturing Index (previous 54.6)

Tuesday: Factory Orders for May are pegged by analysts to stay the same. That’s about as neutral as it gets.

Wednesday: Independence Day (no reports scheduled)

Thursday: Weekly Jobless Claims, not that important because it’s weekly, ADP Employment (Previous 178,000), which many believe foreshadow the highly-important Monthly Employment Situation, due Friday. If payrolls rise, interest rates could as well. We also get a speech from the Fed, which can cause all sorts of chaos or nothing at all.

Friday: The most important day of the month. The Employment Situation Report predictions show the unemployment rate should remain at 3.8 percent, and payroll numbers are expected to stay the same as the previous months. You can see why rates are not really moving these days. Nothing’s changing.

Rate lock recommendation

Rates are trending higher over the long-term, with occasional dips. Today’s economic indicators are mostly favorable, so if your rate has not increased or even dropped this morning, grab it.

In general, pricing for a 30-day lock is the standard most lenders will (should) quote you. The 15-day option should get you a discount, and locks over 30 days usually cost more. If you can get a better rate (say, a .125 percent lower rate) by waiting a couple of days to get a 15-day lock instead of a 30, it’s probably safe to consider.

In a rising rate environment, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer you lock, the higher your upfront costs. If you are weeks away from closing on your mortgage, that’s something to consider. On the flip side, if a higher rate would wipe out your mortgage approval, you’ll probably want to lock in even if it costs more.

If you’re still floating, stay in close contact with your lender, and keep an eye on markets. I recommend:

Video: More about mortgage rates

What causes rates to rise and fall?

Mortgage interest rates depend on a great deal on the expectations of investors. Good economic news tends to be bad for interest rates because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.

For example, suppose that two years ago, you bought a $1,000 bond paying five percent interest ($50) each year. (This is called its “coupon rate.”) That’s a pretty good rate today, so lots of investors want to buy it from you. You sell your $1,000 bond for $1,200.

When rates fall

The buyer gets the same $50 a year in interest that you were getting. However, because he paid more for the bond, his interest rate is now five percent.

Your interest rate: $50 annual interest / $1,000 = 5.0%

Your buyer’s interest rate: $50 annual interest / $1,200 = 4.2%

The buyer gets an interest rate, or yield, of only 4.2 percent. And that’s why, when demand for bonds increases and bond prices go up, interest rates go down.

When rates rise

However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.

Imagine that you have your $1,000 bond, but you can’t sell it for $1,000 because unemployment has dropped and stock prices are soaring. You end up getting $700. The buyer gets the same $50 a year in interest, but the yield looks like this:

$50 annual interest / $700 = 7.1%

The buyer’s interest rate is now slightly more than seven percent. Interest rates and yields are not mysterious. You calculate them with simple math.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.